11 Reasons Why Businesses Should NOT Surcharge Credit Cards

On the surface, implementing a surcharge fee might seem like a quick and easy way for merchants to offset costs associated with payment processing. But adding surcharges to credit card transactions without considering the consequences could be detrimental to your business. 

Is surcharging right for your business?

I’ve identified all the reasons why you avoid surcharging credit cards based on my experience in the payments industry and some data that shouldn’t be ignored. 

1. Credit Card Surcharging is Illegal in Several States

First and foremost, it’s unlawful for certain businesses to surcharge credit cards based solely on their location. 

Surcharges are flat-out illegal in some states, while other states allow surcharging but with strict contingencies (like maximum allowable amounts, disclosure statements, dual pricing models, etc.). 

These laws can be extremely complex, particularly for online sellers and businesses operating in multiple states. Generally speaking, the laws apply where your customer is located—so you need to have really strict systems in place to apply the correct surcharge based on where the order was placed and where it’s being delivered. 

There are even some federal laws limiting how and when merchants can surcharge credit card transactions. So you’ll need to navigate the matrix of what is potentially allowed for your business before you consider moving forward.

We have a guide on the credit card surcharge laws in all 50 states that you can use as a quick reference. But this is not legal advice, and you should definitely consult with an attorney before moving forward. 

It’s also worth noting that you shouldn’t just rely on the information your processor provides. At the end of the day, YOU are 100% on the hook if you’re breaking the law—not your processor. 

2. You’ll Likely Lose Customers

Studies show that consumers are against surcharging. This may seem obvious, as passing merchant fees to your customers means they have to pay more for whatever they’re buying. 

But did you know that people are actively staying away from businesses that charge surcharge fees and convenience fees?

In fact, 71% of consumers say they avoid businesses that charge credit card processing fees. 

Personally, I don’t think you’ll lose 7 out of 10 customers—but I do think that you’ll lose some. 

For most customers, it’s less about the fee and more about the principle. You’re better off just raising prices by 5% across the board instead of hitting people with a surprise 3% fee at the purchase point. 

Customers don’t like to feel like they’re getting nickel and dimed by merchants, and they’ll think twice about coming back to your business, especially if they can pay fee-free from your competitors. 

3. Surcharges Can Take Away From Employee Tips

There’s a growing sentiment amongst consumers that if you’re going to charge them a surcharge fee to pay with a credit card, they’re simply going to deduct that amount from their tip.

While this only applies to merchants in tippable industries, like restaurants, bars, hospitality, and service businesses, I think there’s a serious trickle-down effect here that you need to be aware of.

The rise of customer-facing POS screens that are defaulting to tips has already created a sense of nationwide tip fatigue—with 61% of customers saying they’re tired of tipping at restaurants (up from 53% the prior year). 

Look at the latest data from Restaurant Dive, which shows a clear decline in customers tipping over 15% and 20%–and sharp rises in customers tipping less than 10% or not at all. 

Your employees are already hurting from getting tipped less.

Now, a 15% tip or 10% tip may drop to 12% and 7%, respectively, if customers have to pay an additional 3% surcharge for using their credit cards.

If your customers already have a set percentage that they’re willing to pay, your employees are going to suffer. Is that fair to your staff? Definitely not.

I genuinely believe that this will create even more problems for business. Employees will be upset with you since your surcharging policy is ultimately hurting their pockets. This can lead to higher employee turnover rates, declined job satisfaction, and other issues that will likely cost your business significantly more than the few percentage points you’re trying to recoup in the form of a surcharge. 

4. You Can’t Surcharge Debit Cards

Debit card surcharging is illegal in all 50 states. This is a federal law, and there are no exceptions.

So if your payment systems default to adding a surcharge fee before the customer even swipes, dips, or taps their card, you’re going to have a legal problem on your hands if that customer pulls out a debit card.

This means you’ll need to train your staff to actively monitor whether a debit or credit card is being used to pay—by asking your customers verbally and potentially inspecting the card.

Preventing the accidental surcharge on debit cards is even trickier for self-service machines and contactless transactions where your staff isn’t actually interacting with the customer or physically touching their cards. 

Federal regulators can charge fines up to $1,000 per violation, with even harsher penalties for repeat offenders. 

Unless you have foolproof procedures in place to ensure you don’t add a surcharge fee to debit cards, then I’d just avoid surcharging altogether. It’s not worth the legal headaches.

5. Card Networks Prohibit Certain Surcharges

In addition to navigating conflicting laws set forth by state and federal mandates, you’ll also have to comply with card network regulations. 

While failing to comply with Visa or Mastercard won’t have any legal consequences, you can still be fined heavily based on the terms of your agreement. 

If you look at Visa’s surcharging rules, non-compliance can result in penalties ranging from $50,000 to $1 million. 

Beyond these hefty penalties, Visa could even revoke your right to accept their card.

Read your latest merchant processing statement to see what percentage of all transactions you processed came from Visa. Can you afford to lose 40% of your transaction volume? I doubt it.

6. Your Effective Rate Can Rise Out of Control

Let’s say that, despite all of these drawbacks, you decide to move forward and impose a surcharge fee on credit card transactions. 

That’s totally fine, but here’s what’s likely to happen next.

There’s a good chance your processor is going to increase your rates—not just because of the surcharge program but because that’s just what processors do.

Under normal circumstances, you’d get a notice of a rate increase and hopefully push back against it to keep your costs under control. But if your customers are not paying this fee, you’re far less likely to care about your rate.

This can lead to major problems.

Fast forward a year or two down the road, and your effective rate is now a whopping 5%. But once you factor in your state laws and card network rules, there’s a good chance you’ll only be allowed to impose a 3% surcharge fee.

Now you’re almost back where you started before you implemented a surcharge program. You’re still paying the difference between what’s recovered from the program and what’s still owed to your processor, and it’s going to be way harder to lower your effective rate after you’ve neglected it for so long. 

7. Laws Related to Surcharge Fees Are Constantly Changing

One new bill being passed in your state can completely derail your surcharging program and pricing strategy. And the risk of this happening is higher than you might think.

In less than 12 months, we’ve seen several states change how they govern surcharges.

For example, Minnesota changed its surcharge laws on January 1, 2025. California and New York both changed their surcharge laws last year. Illinois has laws going into effect this year that impact how fees are charged on tax and tips. 

There are several other states with bills being presented that haven’t yet passed that house, all with the intention of adding stricter terms to how businesses can impose surcharge fees (and if they can do it at all).

You don’t want to find yourself in a position in the future where you’re relying on surcharge fees to offset your costs only to find out you can no longer charge these fees. This situation will be exponentially worse if the scenario I mentioned above is also occurring and your effective rate is out of control. 

8. Surcharges Are Bad For Your Online Reputation

We’ve already mentioned how surcharge fees can cause you to lose customers. To compound that, you can expect some negative reviews on the web about these extra charges.

I’ve also noticed a growing trend on Reddit where users collectively compile lists of businesses adding surcharge fees to transactions so the local community can actively avoid them.

Here are some examples so you can see what I mean:

These are just three cities that generated hundreds of comments. 

But you can do a few quick searches yourself to see how popular these posts are and how passionate consumers are about avoiding these places charging fees. 

9. Your Staff Must Be Properly Trained to Maintain Compliance

Many states require merchants to properly disclose surcharge fees prior to the transaction, and in some cases, the fee must also be verbally communicated to the customer.

This means that your staff needs to be trained on how to disclose the fee, and then you need to make sure that your team is actually following through on it.

If your staff is lazy, forgetful, or just simply uncomfortable telling customers they have to pay a surcharge or convenience fee, they’re doing more than simply breaking company policy—they’re causing your business to break the law.

Furthermore, they need to be diligent about debit cards. As mentioned earlier, adding surcharges to debit card transactions is illegal everywhere. 

10. Surcharge Fees Can Be an Administrative Burden

To make matters even more complicated, surcharges can be a reporting and accounting nightmare.

Again, this varies by location, but you’ll need to account for federal tax laws, state laws, and local tax laws for how you’re reporting and paying taxes on these fees.

While a surcharge technically passes these fees to your customers, you need to make sure you’re reporting everything properly because they’re still part of your gross receipts for federal tax purposes. 

And what if your surcharge fee doesn’t cover the entire cost of acceptance? How are you now reporting your expenses? 

I’m not saying this stuff is impossible, but it’s definitely an added headache that could result in tax penalties for simple mistakes. 

11. Implementation Costs May Not Be Worth It

While payment technology has definitely advanced in recent years, some processors just don’t make it easy for you to set up a surcharge program.

There’s even a chance that your existing processor doesn’t have the capability at all—or if they do, you’re forced to jump through complex integration setups to implement it.

Switching processors is rarely something that we recommend. And switching just for the sake of adding a surcharge program can be really expensive and might not be worth the cost. 

Final Thoughts

Surcharging credit card transactions continues to be a hot topic in the payments world with lots of mixed opinions. 

We’ve received more questions about surcharging in the past year alone compared to the last five years combined. We’re also getting tons of messages from customers who are frustrated about businesses adding surcharges to card transactions.

To be clear, I’m not telling you that you should avoid surcharging. In some cases, it’s reasonable and a good way to offset processing costs. 

I’m just saying that you should approach this with caution. Trying to get a few percentage points back to offset rising processing costs could end up costing you upwards of 10% or more if you’re losing customers and dealing with other expenses. In this case, it’s just not worth it.

Instead of surcharging credit card transactions, you can always look for other ways to reduce your payment processing costs. Here at MCC, we can audit your statements to find savings opportunities and then negotiate new deals directly with your existing processor—so you can save money without switching providers, and the buck won’t be passed to your customers.

Alternatively, we can also help you navigate your surcharging questions. So reach out, either way and we’ll help guide you through this decision.